MBFM2017: Money, Banking & Financial Markets- Report Writing Assignment Help

Internal Code: TV490

Report Writing Assignment Help:

Task: Please prepare typed answers to all questions in Section 2: Readings. Max length is two pages. Within this 2-page limit, feel free to draw clean graphs by hand. Minimum size font is 12pts. Please put your name and university ID number at the top, as well as the day and time of your tutorial. Thanks. Exercise 1 Consider two economies, A and B. Both economies have the same population, supply of Öat money, and endowments. In each economy, the number of young people born in each period is constant at N, and the supply of Öat money is constant at M. Furthermore, each individual is endowed with y units of the consumption good when young and zero when old. The only di§erence between the economies is with regard to preferences. Other things being equal, individuals in economy A have preferences that lean toward Örst-period consumption; individual preferences in economy B lean toward second-period consumption. We will also assume stationarity. More specifically, the lifetime budget constraints and typical indi§erence curves for individuals in the two economies are represented in the following diagram: 1. Will there be a di§erence in the rates of return of Öat money in the two economies? If so, which economy will have the higher rate of return of Öat money? Give an intuitive interpretation of your answer. 2. Will there be a di§erence in the value of money in the two economies? If so, which economy will have the higher value of money? Give an intuitive interpretation of your answer. Exercise 2 Consider the following economy: Let the number of young people born in each period be constant at N. There is a constant stock of Öat money, M. Each young person born in period t is endowed with yt units of the consumption good when young and nothing when old. The individual endowment grows over time so that yt =yt1 where > 1. For simplicity, assume that in each period t, individuals desire to hold real money balances equal to one-half of their endowment, so that vtmt = yt=2. 1. Derive the lifetime budget constraint for a typical individual. 2. Find the real rate of return of Öat money in a monetary equilibrium. Explain the path over time of the value of Öat money.